Where social security change is heading
Now it is up to the House and to President Reagan to follow the Senate's lead in proposing changes for the nation's vast social security system. Current focus is on short-term measures to shore up the system financially. The main social security trust fund -- the one that pumps out monthly checks to 35 million Americans -- may dip into the red as early as next year.Skip to next paragraph
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The Senate, in a bold break with the past, has voted 49 to 42 to cut the growth of social security and federal retirement benefits by $7.9 billion a year. This would be done by changing the way benefits are tied to inflation and by delaying the payment of increases from July 1 to Oct. 1.
Benefits themselves would not be reduced under the Senate plan -- only the size of the annual increase.
The House, which has yet to act, may wait for Mr. Reagan to weigh in with his own ideas on how to save enough money to keep social security solvent.
Reagan hs opposed breaking the link between the growth of social security payments and the consumer price index (CPI).
On July 1 of this year, for example, each retiree will get an 11.2 percent boost in benefits, reflecting the rise in the CPI from the first quarter of 1980 to the first quarter of 1981.
This action, which will cost the system an additional $15.4 billion, follows a 14.3 percent increased last July.
The White House, says Budget Director David A. Stockman, rejects tampering with the indexing formula "if it erodes the real value of benefits under social security. This is a commitment [we have made] to society."
Nonetheless, in a letter to Sen. Robert C. Byrd (d) of West Virginia, Mr. Stockman and Treasury Secretary Donald T. Reagan acknowledged the need for "significant savings."
"A package of reforms designed to maintain solvency of the fund" will be forwarded to Congress, the letter said, through Richard S. Schweiker, secretary of the Department of Health and Human Services.
In this package, says Mr. Regan, "we probably will be suggesting other things" than changing the indexing formula, though he foresses the need "eventually" for the government to take a fresh look at how it measures cost-of-living increases.
A specific reform, said the Treasury chief Sunday on "Issues and Answers" (ABC-TV), would be to make it harder for federal workers to double-dip -- that is, retire on their federal pensions, then work long enough in the private sector to qualify for social security.
Long-term reforms under study include advancing the retirement age for full social security benefits from 65 to 68 and reducing the ratio between a retiree's benefit payment and his last paycheck.
Instead of 42 percent of his last paycheck, for example, the average person entering the social security system might receive only 38 percent. The ratio would be reduced more if he retired early.
Such changes would cut benefits for people retiring in the future, but would not affect the 35 million Americans already getting their monthly checks.
The Senate action, however, would reduce the annual benefit increase for current beneficiaries as well as for retired federal employees, civilian and military.
This would be achieved by basing the yearly increase either on the CPI or on the national average increase in wages, whichever was lower, instead of solely on the price index.
In the past few years wages have risen roughly 10 percent a year, lowern than the CPI's 13.3 percent in 1979 and 12.4 percent last year.
This means that retired persons have been fully compensated for inflation with tax-free benefit payments, while most working Americans have fallen behind in the inflation race.
Because the cost of buying a home bulks large in the CPI, most elderly Americans actually have been overcompensated for inflation, since relatively few retirees buy or sell homes.
The other part of the Senate proposal -- to postpone the increase payment date from July 1 to Oct. 1 -- would take effect in 1982.
Profound changes in US demographics, or shifts in the American population, contribute to the need for social security overhaul.
Americans are living longer, which means that workers now paying social security taxes --a larger number of retirees.
In the 1930s, when the system began, about 11 workers paid taxes to support one beneficiary. The ratio now is 3.2 worker to each retiree. In 50 years, according to some experts, it could dip as low as 2 to 1.
This could change, if Americans in coming decades decide to have larger families -- i.e., more future workers -- than has been the case in recent years.
For the foreseeable future, however, benefits will continue to grow and so must pay roll taxes to finance the system.